Economic Watch

End of recession does not garner a single cheer

Boosting "growth"
Maize.jpg

Neither the Minister of Finance nor a single economic commentator offered any applause when South Africa came out of its recession this week – why?

The main reason is probably that the recession was in the first instance a, for even the pundits, a largely abstract, and arbitrary technicality defined by two consecutive quarters of negative economic growth. The ‘coming out of it’ is likewise a technicality of very little, if any consequence for the majority of South Africans.

How technical, and narrow the divide between recession and growth is, is illustrated by the fact the South African economy owe it new non-recession status to Gross Domestic Product (GDP) growth of by 2.5% in the second quarter of 2017.

Add to this the fact that one of the main drivers of this growth, according to Stats SA’s Deputy Director-General responsible for Economic Statistics, Joe de Beer, was the record maize crop for this year, and it makes for a very sobering picture.

Maize is a seasonal factor that will have disappeared by the time the next quarter’s stats comes around and some would say the country made it out of the recession by the grace of God.

Reality on the streets

One should also not expect dancing on the streets of South Africa at the news of the ‘end of the recession’ if you consider the implications of another recent statistical report, which reflects ‘real word’ reality for millions of South Africans.

The Quarterly Labour Force Survey for the first quarter of 2017, published on June 1 found that the country’s unemployment rate again steadily edges up towards its March 2003 peak of 31.1 – currently at 27.7%.

Unemployment growth is at 4.8% on an annualised basis double that of employment growth at 2.4%.  And, especially the youth and those aged 50-65 are at the receiving end of this negative trend.

The youth unemployment rate rose by 1.6 percentage points to 38.6%‚ and of all unemployed people, 58% are aged between 15 and 34

As reported in another article, carried elsewhere, 60.3% of young people looking for work have never worked before and cannot find a first job. The longer they are unemployed, the less their chances of ever finding a job.

There are now estimated 9.3 million officially unemployed and people who have given up hope of finding a job in the country and more than 30 illion living below the poverty line and according to some analysts the per capita income growth continues to contract with little hope of it turning around in the foreseeable future.

Professor Raymond Parsons of NW University said growth is still inadequate to turn the country’s economic prospects around.

“Even on the most favourable assumptions about economic trends for the rest of the year, the growth rate for 2017 is likely to be only about 0.6%,” he warned.

“This remains well below SA’s economic potential as well as the growth targets outlined in the National Development Plan. Serious socio-economic challenges still face SA, given that the economy remains in a low growth trap. There are no grounds for complacency about the economic outlook and the maximum cooperation between public and private sectors is needed to improve the situation,” he said.

The general reaction from top economists is illustrated in a note issued by Investec: “A low economic growth environment will remain entrenched by the depressed business and consumer confidence levels that have been linked to perceived heightened policy uncertainty and perceptions of weakening governance.

“At its July Monetary Policy Committee meeting, the SARB noted that it is unclear where the drivers of accelerated growth will come from in the absence of credible structural policy initiatives that will reduce uncertainty and increase business and consumer confidence.

“At the same meeting, the SARB lowered its GDP forecasts to 0.5% for 2017 from a prior 1.0%, with 2018 and 2019 GDP forecast at just above 1.0%, with risks assessed to be slightly on the downside”.

Ticking time bomb

In this week’s Monday Briefing political analyst and director of AIC, Stef Terblanche, writes: “… massive poverty and youth unemployment remain the two major social ticking time bombs.”

Analysing a number of factors strangling the South African economy, he concludes: “Clearly, there is a vicious-circle effect at work, with no relief in sight as government policies fail to address this adequately.

“While we have seen the recent positive effects of greater cooperation between business and labour in keeping wage increase demands and settlements within reasonable levels this year, these two sectors can probably do much more to engage more pro-actively and cooperatively with government on the unemployment/job-creation front.”

by Intelligence Bulletin Team

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